WMC - Earnings call transcript Q3 2017 | Western Asset Mortgage Capital Corp

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Operator

Good day and welcome to the Western Asset Mortgage Capital Corporation Investor Call and Webcast for the Third Quarter 2017. All participants will be in listen only mode. [Operator Instructions] Now first, I'd like to turn the call over to Mr. Larry Clark, Investor Relations for the company. Mr. yours is floor the sir. Clark,

Larry Clark

months I Thank the press joining financial release thank XXXX. company's three for yesterday afternoon, available at to today you, results issued to on earnings the Corporation's website operator. us Capital discuss everyone Mortgage www.westernassetmcc.com. XX, it's want Western our September ended and for We Asset

In refer to can presentation that addition, you we have included an the accompanying call. slide during

management With are the in Murphy, Investor section us slides today Lisa these website. from Chief Investment Officer; Officer; access can Executive Officer. You Financial and Jennifer Agarwal, of Chief Relations Chief the Meyer, Anup

the now Copies call are law. statements any to by with Exchange subject turn on unless of Risk control Factors Before provided due those Actual Reform differ cause we statements the I'd Commission. to disclaim this forward-looking of section forward-looking such will Act of the beyond forward-looking to impact the by date and are obligation Murphy. at intended Jennifer? within will company's and that over the Harbor in call Harbor made review the contained filed the of forward-looking begin, XXXX. that, This statements included be All All Securities from without presentation from this to the conference our We Reform statement. the I constitute Safe in materially factors presentation are those are the could as actual With subject like to notice. forecast included Certain of statements only statements statements the results of materially Litigation company. Jennifer Act. change that SEC's to update to in the are could factors results differ the many reports Securities and contain available the forward-looking meaning website the Safe to protection outcomes of Private www.sec.gov. required

Jennifer Murphy

then we open you appreciate to then begin Agarwal, brief overview welcome comments. to of a results an up outlook. Q&A. up return remarks of am everyone. investment months economic we and our book XX%. some Thank quarter opening it Meyer, of year to value open Larry. economic joining performance report our going of We bringing Lisa our another it and Officer with will will generating going our and us. delivered for X.X% return of you, After portfolio is provide And discuss Officer financial I'm for pleased I solid Investment Financial Chief on our Anup XXXX our first the the nine an Chief

total shareholders a previous higher that As core earnings while we for provide an well goal is is as plus our value. as relatively dividend provide to have noted potential supported during book stable by with primary income our sustainable calls, drop maintaining attractive returns

quarters During been the book earnings we and last what increase the believe generating six to for has third which stable an core we quarter, again value. sustainable attractive solid dividend achieved declaring and our goal, in be posting that

hedge the of of in investing strategy the of began diversified that portfolio the the restructuring repositioning in across a quarter third Our benefits a portfolio December long-term market. sectors of portfolio of performance quarter XXXX.The our our and reflects number mortgage of we XXXX second in sub

manages many which makes for partner manager an important Asset's assets. know, competitive related to In and you gives WMC's opportunities, real largest it advantage. scope of is our investment financing. manager Western originations estate scale the Asset world's broker Western over in our and and access our XXX dealers many scale our team billion Western As Management Company view, banks, of Asset's which is trading

WMC's connected is team success. deeply to Asset Western committed Asset and deeply is Western to WMC Our

the Asset's depth and As relationships, platform. the and a global team result, WMC of can Western breadth on draw

Our excellence other completed also report class offering corporate financing a the income increase earnings XXXX. senior that portfolio in of manager. efficiencies in investment in pleased I risk us should and quarters. believe source early large in a this October scaled $XXX is the coming to convertible of We term of due am management capital strengths operational focus of an fixed which attractive the capabilities, investment, our of on power we to enable goals notes the million and and the global X.XX% providing that benefits firm best WMC and longer financing to of access

to welcome In the investors addition several as addition, we our institutional partners. of new expanded long-term and base them with we company investor our

earnings As to decisions approach dividend stability we consistent pay This our long with due consultation reflect have for discussed power term has the of six continues be of to portfolio. our a and us in dividend us. allowed in each our goal important dividend board for quarters corporate our our quarter an

considerable diversified put and we into tuning of to commercial investment and execution a us strong enable operational portfolio and So, deliver assets conclusion to results shareholders. to have our our in residential built effort processes and better consistent fine we and

As quarter you and off. efforts can paying see from believe these are year-to-date, our we results this

results. with to So, turn I that over the third am to Lisa Meyer, discuss going quarter to Lisa? our call

Lisa Meyer

Jennifer. you, Thank

per million the presentation. generated solid is Book with We sustainable XX.X of of provided to on the of are for per detailed $X.XX. value months return for XX has quarter. first our quarter million believe quarter. appreciation, that share. share. net strong to We We quarter generating for consecutive This declare enabled earnings X.X% attractive a A X.X% or or the pleased nine of dividend $X.XX per and generated what of income has third the performance XX% $XX.XX and third schedule plus book $X.XX $XX.X share. for we value investor an value core of us drop Core earnings been page increased a book XXXX first is economic strong income our continued

did lack of the six The ideal quarter. the for the has income that during the reflected stable income view holding Agency our now not TBAs drop dividend for not We was period. for been any quarter Our third consecutive environment drop quarters. for record

in said the has of income our drop near-term quarter-to-quarter from will vary spreads. depending upon Agency Anup our mortgage view As past,

interest in net XX.X for million, the up second from quarter cost of the million our XX.X including income was the of quarter hedges Our XXXX.

our Looking and interest bridge holdings, holdings from of Non-Agency at whole net income loans remaining CMBS and approximately from CMBS and and XX% source, it derived other RMBS was our and XX% by Agency RMBS our from securities. residential the XX%

of hedge was in net partially interest on portfolio the cost fund in of of quarter. second low X.XX% The to from second X.XX% average lower the deal result mainly investments investment by the Our in a a our restructuring decline declined book margin offset quarter. our interest margin to of a slightly average due net

lower reduction in equity our administrative for quarter XX% professional second was Our restructuring quarter the third million from our lower lower of in used second fee management primarily was $X.X expenses. the the interest of The in significantly the which of expenses the was of and general decline quarter the a administrative third and fee. fee general expenses total the result as management fees. in XXXX. reduced expenses, swap particularly base $X.X quarter million, as rate to well decline and The third in the combination calculate in expenses to The in down due X% quarter million declined $X.X the was from our year-over-year

sensitive of credit Our the is high not anticipation end more ratio of was sensitive to offering more and convertible view decline leverage the at third asset our decreased the early we equity. which We quarter in put our leverage and notes Overtime, portfolio as We higher expect which It of and portion October. quarter capital costly Agency the leverage are leverage efficient ratio straight issuing to financing do of investment at on to X.X on cheapest is keeping that important leverage transition the while leverage lower class. right closed increased because necessarily our times as this the which mention which finance in portfolio the from investments. quarter. may the the as end, of to our of easiest whole to times X.X a We security end we finance. they second to are equity credit on we by

needs, Western Asset. of have in to of capacity continue of resources excess repo result a WMC's the current as our We tag into to ability

We I have that, with and master counterparties continue will now to over to With agreements call outstanding purchase XX Anup? borrowings XX. only the Anup Agarwal. turn with

Anup Agarwal

Thanks, Lisa.

holdings was by market. of diversified driven of performance across our our reflects of third contributions investing in Our strategy the in mortgage sub sectors of number portfolio benefits and in quarter overall the

loans, remain across several sensitive the and non-Agency market and mortgage slightly under our how commercial mortgage the are a In few sectors invested risk favorable risk were particularly space. expect to bridge investible during Agency loans, have allocate quarter, both well-structured pool RMBS. packaged perform the primary and believe both that sectors. to would home we return the months. credit transfer nine into portion commercial The holdings in are loans of mezzanine capital as CMBS, continued see of market opportunities favorable to adjusted best securities in in bridge residential for over spreads CMBS growth sectors and Our our next CMBS junior an relative primarily non-Agency expected residential and like credit in opportunities the now including value RMBS non-Agency GSC, We the tighter spend Agency franchise in to four discussing six also ongoing I environment credit well that we of performed our securitizations, as portfolio, universe and minutes Residential re-performing sectors. where most we loans, loans CMBS.

the intend on elaborate capital. where sectors me a our bulk of continue couple of to these deploying we Let

As for months up as of Agency made our amount end we sector reasons. of reallocated number holdings significant you a our nine find the of have a know, last CMBS portfolio. into of XX% attractive We quarter over which

Mae the and properties. First Fannie by multi-family Freddie are residential pools Mac to issued finance

are the attractive rate to Asset, expensive ramp and to to CMBS not risk also from directly from to securities sector funding banks position. be more predominant this others mortgages believe other protection costs. high advice Agency line yields quickly, advantage the and due originators relative which have capability the able attractive are paper our may RMBS longer take this the interest of Western to spread have could than a have collateral Agency that while more competitive in up in hedging built cost which holdings resulting The up only a buy then single-family can have loans from but source RMBS. build we lower of less considered to lower fairly We and skills we effective more we to offers therefore a and due make investment

continues to generally and loans. These held us for term rent. one for three short focus to are be the in Another nature, sold to or used residential renovating of homes area bridge loans years for be are

established income them We global develop fixed adjusted from both and institutional increased risk term the that benefit returns. in a believe partnerships we and originators of with to that we a their to execution. guide parties, originators an long to of premier lines beneficial will with capabilities result provide results have processes they manager, network believe their working relationship origination are in us the with give introduced quality building that likelihood relationships attractive with a of loans mutually We these we pipeline underwriting

use total believe of the achieve can higher on we addition, residential we from bridge returns repo financing. In loans

we earlier, benefit third our with which have as of is As noted numerous Lisa Western another Asset manager. having relationships parties, repo

As opportunities bridge this asset to expand, our loans relationships going forward, steadily and class our see of will increase. exposure residential with our originators we

performing securitizations mortgage as looking exposure the are also residential as of attractive. adding is franchise as well at we this In franchise market sector through we well-structured loans believe to junior addition, primarily junior of

portfolio the and our with the stable we during continues quarter for pleased very book and earnings solid core and it year-to-date are believe We value. us performance that well to position relatively of a

returns monitor the to across for generate our up questions. mortgage continue the call that, in the shareholders. of to will With risk an value will open opportunities effort adjusted we broad attractive to universe we always, relative As

Operator

Thank you, sir.

of begin JMP. now The have Instructions] will We question go will and first question Trevor ahead. Cranston answer come the [Operator Please session. we from

Trevor Cranston

thanks, morning. good Hi,

guess. From to opportunity plus sounded opportunity you re-performing queen currently, that guys somebody there at part that franchise comments buying looking prepared yourself you are have question is there on this I you in a packages good securitization talk loan maybe the done for it looking whole But guys at. First securitization and that's are out by shorter a market by month you has on and the history you the from XX loan it opportunities that on like of in guys have more pay mostly can like up presently securitization else a would that is - sense guys go queen possible additional history. pay the pick focused focusing less any by in or that thanks. Or do a returns in long of about

Anup Agarwal

Yeah, so different into divide two it's I sure think that's your great And let question a question. me parts. -

first The buying terms of the for the it on then and kind in one we pools look kind before generally junior of paying franchise. securitizes

they there securities. availability somebody re-performing for doing securitization from generally franchise else's all know no junior to whenever junior the As people of is you loans, securitization are tend keep

shelf our in not we - very is to we is of pools the - when WMC, approach that under we and investing Because to it benefit not are is of So, in credit all utilize the it classes. explaining securitized are could amount. kind and driven see want our by has utilize those junior be shelf, it point ultimately pools for or but for fair because look we and on the quality somebody securitization controlled presentation perfectly been securitize see ultimately, it we securitization to loan the see way it our before those else's our that much may pools more look - we have we long the may we

you pay at of expectation ultimate harder those look driven be And views pay could cleaner second had pick want much I are most don't it losses by part yield history. dirtier I is for kind history obviously history. portion evaluate defaults even broader more the bank terms just in in up this question? to the cleaner dirtier pay compressed to we better to at loss versus bit. relatively our Did expectation pay looking question in one second that's just of of And versus quite see pricing a but as to dirtier answer of loans clear yeah, bit pay cleaner things, or for paper. tends very The overall lose pay less is much your think And evaluating that our while little variability of in two us

Trevor Cranston

that. Yeah, Thank that was for helpful. very you

of I be bit loan value are little you loan was Thanks. strategy guys think is because could and partially wondering loans question, the in I what off size is mortgage guys the any when the curious average paid the change the I have on performance bridge am that deduction doing on could as you at Second a of if impact what may talk you about curious the of sort portfolio. interest that if was ultimate the property to

Anup Agarwal

much is of mortgage by think driven of bridge - lot mortgage interest market that, broader mortgage market impact loans in doesn't including you is - to house changes deductions, will rate mean buy by is, I fundamental in the higher shift borrowers. very in market our - fundamental on bridge just said is loans traditional availability in a loans our very that from a Yeah, do these be having construction quality really I bank interest the leverage have if shift a focus On exist. and average for mortgage

property value reverse capabilities more significantly be end on what be. so values our spectrum end finance lenders, kind to finance. XX% focus is the on what loan most what in again that the borrowers. loan much also terms the to A, focused terms is to incomes even on to after of Generally, loan loan people size, and you there of back is been care portion, willing of are the better at this lesser on in the update on of and the or and about also $XXX,XXX slightly again a average of the this borrower lot is bridge seasoned people of of about size interest better So, On large the that our of on this may is is in care pretty focus B willing kind think borrowers could are very really occur

and So, on up the more happy the borrower kind comfortable higher our bend quality lesser just tends - higher to bit quality be focusing we are yield but just taking on of we borrowers. are

Trevor Cranston

expecting are term Got share it. end that Last over about guys Thanks. the of you question, years year. flood the increase end can you the guys you also, are internally are and for guys how for constructing to number And thinking rate going of the impacts through the I short outlook you rates portfolio the particularly next interest next hedge to how guess. funds how

Anup Agarwal

our mean, consistent. much very have been views I Sure, - pretty

will while be John very likes will the who of that of very the Our continue be views grades positioned and slower to in for how a environment environment that's in are the its the about are be portfolio. we by will next you still growth, year, upper moment and Powell, with driven be [ph] and then kind in slower be kind in constructive at slow in much to but and December there we of will very

a are Agency at pretty standing safer look focus related duration, you why of grow to still just of and will paper towards housing. to virus will flat, risk Agency to, is alternative be because the - some be tends That's paper - for loans normally If which RMBS, spread RBS. especially a for the with to which for constructive only environment credit to we close risk versus overall has the home which view tends still kind in there our that that, to characters broadly continue to kind overall of constructive it our we

Trevor Cranston

comments, the thank Okay, I you. appreciate

Operator

Morgan. Richard have of J.P. we Shane Next,

Richard Shane

this my for question taking guys Hi morning. thanks

financials, like this So, stand been end, that low is a stability here the to think value? little one talk about take we look things when in militantly great stability on value last we the dividend a out, second can volatility. I at you've the and that of trend On one hey, to around bit. a enable during around period is and say it's trend, establish established the book two book quarters other you I the three

you are the So, out shift I'd here? it the just what's statical strategic or to it it's giving cause place love so been another discuss sort strategies, a that has hard eventually opportunity? volatility is to remain is And put the we can that Is we if of market value what that in and is, to stable. enter period what what book that expect

Jennifer Murphy

about couple just I you common a talk thank trick, guess of your question. I'll for

are that is we've can think on for for Anup about the to restructuring team, I I balancing right then our the you given It's ways of but the that. he's ability have and it's help and we some those one would a really our active power going return about meaningful to talk of that the the You're would other say, the in goal manage the us. thing want of the senior the is, I in not balance forward. your team that add portfolio we investment is doing I we of corporate things main to and portfolio, mention to so a between here better that we book Sean and us, stability really But, the Anup portfolio the made and you to team his more in way based think question well. And, much profile so to and focused think of engagement the approaching people us give the are made change do portfolio. have things components that Anup the portfolio, risk expense Johnson are reductions and H returns portfolio, of only risk the risk

Anup Agarwal

Jennifer. thanks Yeah, actually,

constructive, think kind is though. of lot right a seen of the our of would forth other you've very you're highlight there But participants. think than but by, question things also market I thanks different has for couple portfolio, are which the market been I sentiment I

be pretty help well around be with was that CMBS that user, very because Agency home a sizeable to our we in is volatile. of growth kind less second You've tend of the that Agency CMBS. volatile these significantly pre-payment of will seen And designed the loans, feature significantly just less rate volatility growth and kind even believe of

as at keeping straight are I but, continued for when to loan look be less our very environment. of As have segments to growing that where try able even look segments volatility. between well we very we will tend will flat the And opportunities example, to home volatile pretty be are that And less duration our again will curate low, in think kind which you approach, find lot. other that even started we a will it for significantly forward

can So, therapy you think have current but more. because environment of just that in And, whether where RMBS it. the Agency with you senior prepaid have a same an simple prepaid less you have currently you oriented in slams that associated environment per world Agency RMBS,

person, properties same the these to nature can our so, continue Second all to simply dividend have the market you actually is it you Again, to Agency a our way, better in multifamily. you add can what the endowers widen our table borrowed tend the RMBS take to growth. the the environment, Similarly, talk out little lot deeper. hiding company you it to opportunity rent rates if see of stable can time in from our loan those yield. be are was have stability to the therapy, or some and of to market if hired, and to is value but again home construct, very book that kind the rates, different and cannot commitment we doing if happened of at the because loan Agency non-care is CMBS for bit, bridge Even you just but, other then investing on this or people out,

talk, I of which in the those things about of but in doing, things kind are summary are will those those they're package all highlight doing. kind things we're the forever the So,

Richard Shane

answer. No, discounted that's more establishing bolder block. And a like we stuff environment, can a will I way that in into you I a stability mean, to, hope that, demonstrate that think environment ultimately, more more bolder evaluate great to investors to continue stability in lead trade

at a over that point that's in think ultimately I yourself this history proving the that's reflection opportunity. overtime,

You know, it And low been that in those of, like changes. through my volatility mind the lower in that of sounds year environment the provided the were portfolio, embrace positioning the cost last has you lowered we've cost could volatility. guys it reducing you that

Jennifer Murphy

absolutely, investment you add I our also the think our Rick to, both holders, is with shareholders convertible goal I excellent and equity I overtime. note would think give know us the experience investors an to

all of how that, focused portfolio we considered, dividend, So, all of value, the are so on we aspects manage etcetera. things

goal to that's is investors our a strong give experience. So, really overall

Richard Shane

appreciate that. it, Got Thanks guys.

Operator

[Operator it Instructions] no At have this appears questions. time further we that

to like our We the conference Officer to now Murphy, will Session. over back remarks. for Executive call Ms. I to closing question-and-answer conclude are turn Chief any going Jennifer Ma-am?

Jennifer Murphy

you, everyone And us you day. Thank terrific a for joining today. thank Have Mike.

Operator

team the disconnect take this your Ma-am And Everyone you time is Thank of have care day. time you, now the and thank great you management we The today. concluded, at lines. for your rest a conference may and to again. also

Western Asset Mortgage Capital (WMC) 8 Nov 172017 Q3 Earnings call transcript